The Australian School of Economics

Everyone knows about the Austrian school of economics (well, almost everyone, certainly people who regularly scanned the Age Monthly Review in the mid 1980s) and sometimes people were confused by references to the Australian School which was a misprint until the emergence of a genuine Australian School in the last week or three.

Catallaxy is the stronghold of the school. The Dean is Professor Sinclair Davidson of the RMIT and the flagships of the school are the new book by Steve Kates of the RMIT and the even newer book by Peter Smith which Steve launched at a Quadrant dinner last night.

I will take the show on the road later in the year, hopefully starting with a paper in Texas before dispensing Australian wit and wisdom in Missouri, Washington and Boston. This is the abstract submitted for Texas.

This paper advances three theses. The first is that the Austrians are on the mainline of economics (as distinct from the mainstream) due to Menger’s  situational analysis and a distinctive philosophical or metaphysical framework that was identified by Barry Smith. Many of the basic tenets of the Austrians, but not the framework, were taken up by the mainstream. Significant differences emerged between the Austrians and others in the 1930s with the socialist calculation debate, the rise of Keynes and the advance of mathematical formalism. The differences have been intractable because the rise of positivism created difficulties in considering the all-important framework presuppositions that make the difference between the Austrians and other research programs.  Popper’s theory of metaphysical research programs can be used to address this situation and the contents of his program match Menger’s framework almost  point for point.

The second thesis is that Smith’s “fallibilistic apriorism” and Popper’s theory of conjectural knowledge provide a robust alternative to the strong form of apriorism that is a major obstacle for acceptance of Austrian economics in the mainstream.

The third thesis is that Austrian economics will be easier to teach and the mainstream of economics will move more easily towards the mainline when students approach economics with a good understanding of Popper’s ideas.

These theses are presented with the help of five concepts (1) Situational Analysis, (2) Popper’s theory of metaphysical research programs, (3) the Aristotelian or “Austrian realism” framework of ideas, (4) fallibilistic apriorism which is Smith’s term for a robust form of apriorism contra the ‘foundationalist apriorism” of Rothbard and Hoppe and (5) the four “turns” that Popper introduced in addition to his signature idea of falsificationism.

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23 Responses to The Australian School of Economics

  1. rodclarke

    brilliant – Go Rafe!

  2. Driftforge

    Why if you are talking about an Australian School of Economics are you then presenting a paper about the Austrian School?

  3. FM

    Clearly my Econ101 isn’t going to get me much past the Forword. If that. 🙂

  4. Poor Old Rafe

    The Australian school draws on the Austrians and the Classicals so it helps to know something about the Austrians. It is important to realise that the Australian school is not monolithic and there are differences between factions – Melb vs Sydney, in Sydney Balmain East Rozelle vs Neutral Bay, in Melbourne the Bombers vs the Blues and so on.

    The Neutral Bay faction of the school is keen on the Even More Austrian approach, recruiting the Austrian turned Briton Popper to the cause. Popper you may recall spent some time in New Zealand on a kind of working holiday but he wasted the opportunity to learn about cricket and football, he just did bush walking and skiing and wrote The Open Society and its Enemies.

  5. Nuke Gray

    Can the Australian school remain a vital force if it already has such factions? I think we need a strong center, to impose order. The Australian National University should be the final arbiter of Australianity, with dissidents being drowned in Lake Burleigh Griffith- with the odd hard-core rebel being forced to listen to all the speeches of Julia Gillard. Even if this is against various UN treaties, some people are just asking for it!

  6. Poor Old Rafe

    Don’t worry, the school will be less factionalized during the cricket season.

  7. benson

    Congratulations, Rafe. I wonder how the Austrians ever fell out of the mainstream? Menger is synonymous with marginalism, after all.

    And, naturally, I hope there’s a Point Piper faction.

  8. Poor Old Rafe

    Menger is linked with Jevons and Walras as the founders of marginalism but the Austrians fell out of favour because they thumbed their noses at mathematical formalism, then Mises muddied the waters by insisting that the axioms of economics are valid “a priori” which is totally unacceptable to empiricists. That paraticular and peculiar belief adds no value to his analysis but it made his work into the butt of jokes among the mathematicians like Samuelson. Remember Samuelson? He thought the Soviet economy was going gangbusters right up to 1989.

    It is probably OK to have a Point Piper faction now that you can drive on the expressway from Neutral Bay and Rozelle to the Eastern Suburbs.

  9. GeorgThomas

    Thanks for drawing my attention to Smith’s book. I tend to think of Australians (mind you – I only know Australian academics) as being a wonderful blend of totally down-to-earth people with brilliant minds. Well-educated cowboys (sheepboys?) with a penchant for incisive thinking. (I am Dgörman – do giff me a hiding in retaliashion, iff you must.) That`s why they seem to be able to inject a welcome measure of sobriety into those parts of theory that have gone over the top – a feat Smith seems to achieve in his book by providing a constructive alternative to the dogmatic errors in Austrian methodology.

    I am a great, great, great fan of Steven Kates’ Free Market Economics. The moment I learned his superb book had been published, I bought it (at Amazon Germany), incidentally at a reasonable price.

    If Smith’s book is in the same class as Kates’ excellent introduction to economicvs, I am in for a treat.

    Regrettably, Smith’s book is not yet available at Amazon Germany – but I have ordered it, again at a reasonable price of € 25.

  10. .

    It is probably OK to have a Point Piper faction now that you can drive on the expressway from Neutral Bay and Rozelle to the Eastern Suburbs.

    It’s quick until you hit old east Sydney, or the Oaks, heading the other way.

    I quite like Australian Austrians as we are not dogmatic and are mathematised but still very strongly in the theory of Mises et. al.

    Don’t know if I’d fit in with the Auburn Austrians, as much as I admire

  11. Poor Old Rafe

    The Rozelle and Neutral Bay factions meet in Miller Street to avoid the congestion that you hit after the Oaks. Coincidentally the Neutral Bay factional bunker is in the same street at the Oaks, down the hill towards Kurraba Road and the submarine base. The Rozelle faction got lost on the way over so we had to meet somewhere else.

    The Auburn Austrians are a bit of a problem although they do great work in putting things on line for open access plus cheap copies of all the important books. I think it is referred to as “the fever swamp” among the more approachable Austrians at Geo Mason Uni and parts north.

    Recruiting Popper to the Australian school raises some eyebrows because a lot of Popperians are social democrats and worry about the anti-intervenetionism of the Austrians: on the other hand the more dogmatic followers of Mises abominate Popper’s epistemology.

  12. Recruiting Popper to the Australian school raises some eyebrows because a lot of Popperians are social democrats

    No school should be without the depth brought by alternate perspectives.

    Mind you, it sounds like the Australian school is made up solely of alternate perspectives.

  13. Poor Old Rafe

    I don’t think you will find much diversity on policy issues and we are not going to dissipate our energies on metaphysics and epistemology. Except for the Neutral Bay faction and I am happy to talk to myself about these things. And the trees.

  14. I’ve got a question about the trees then, seeing as it is all the buzz down here in Tassie at the moment.

    One of the things I’ve done over the last few months is repackage the Georgist theory of Land Value Taxation as a form of land title (which I’ve taken to calling flowhold) rather than a form of taxation. Big driver here is that introducing new taxes is not politically viable, whereas a new form of title is quite possible; its inherently both optional and respectful of current value.

    Now the biggest hole in the Georgist view is that private investments that affect land value is effectively appropriated by the state. It is exactly the opposite of the problem Georgism resolves in that public contributions to private benefit are appropriated by the squatter.

    Nowhere is this more evident that in the case of the farmer that improves his own land, or the timber worker who strips his.

    Henry George recognised that there must be private recognition of the contribution of the community. To complete the thought process, there must be a corresponding recognition of the contribution made by private interests to the community.

    However other than the cases noted, it is not simple. It’s not impossible today; its a matter of statistical deconvolution to resolve the changes in land value due to a particular project. However it remains both noisy and vulnerable to manipulation.

    To clarify; a private investment that results in a noticable change in land valuation should receive at the very least a significant portion of that change in value in recognition of the value they have provided in. I call this flowback.

    It enables private interests to build a road without toll gates; it enables government to shift risk to private industry where it belongs and efficiently reward the measured benefit it brings.

    So.. to the trees.

    Lets say the government here takes all the forest reserves, national parks, conservation areas etc and transfers them to flowhold title. This values all this land at the current value of its best use.

    Now the aims of this transfer are threefold: to recognise and recover the value in the land; to minimise or eliminate regulation of the land; and to protect the resource and ongoing value of the land from abuse.

    Freehold title on its own covers the first item. Flowback covers the second in theory – but the practice of this I am struggling to work through. The third case is one where my thoughts are still forming, but the basic concept there is to establish what is effectively a bond held by the state against abuse; the greater the potential for abuse, the greater the bond required. For example, some of the iconic areas of Tasmania would require bonds of a near prohibitive scale.

    Back to the issue at hand; how to value the use of naturally benefitted land, such as that used for forestry or agriculture.

    Agriculture, due to its seasonal nature is less problematic. Also, most change wrought on agricultural land is beneficial.

    However timber cutting is by nature a long term, large area process. It requires that land be left for an extended period of years; a generation at a minimum, far more for the alpine exotics we host here. Timbered land accumulates value, year after year, until it reaches a constant level. While it is accumulating…

    Ah of course. Under this arrangement, the accumulation of value must be paid out each year to the land owner, even as the landowner pays for the right to hold the land. The best managers of forested land will do alright out of this.

    Eventually, the value of the land as a growing resource tapers. Interestingly, it is at this time that it’s value from a conservation perspective starts to climb.

    So there remains a conflict at this point – an argument that becomes economic rather than legislative.

    The timber itself effectively belongs to the state, in the same way that mineral resources do; obviously without the inherent risks required to locate and prove. Cutting itself is not then the singular profit point that it is currently, but rather a reset for the process in which the value taken from the land has to be covered by the harvester.


    It does result in a rather inverted process to the current one, but then that is the normal outcome of Georgist adaptations.

    To an extent, I think Georgism fills some of the critical holes in Libertarian thought. One holds that the state should receive full recognition for its contribution to the individual; the other that the
    individual should receive full recognition for their contribution to the state.

    The two perspectives are not exclusive of each other; they are completing thoughts.

    I may have to go read some Popper and see if that sheds new light. Anywhere particular to start?

  15. Ok, have found a copy of OSE part I, will see how that goes.

  16. dover_beach

    You have the energy of a 30 year old, Rafe, and knee/s of steel.. Luckily, there is no drug testing on the conference circuit, but metal detectors at airports.

  17. Steve Kates

    Having founded said Australian School of Economics, and launched it on its way last night at the Quadrant dinner for Peter Smith, I should simply note, before it rushes off in a million directions with claims about what this school of thought represents, that its core aim is to bring Say’s Law back into economic discourse as the central element in the theory of the cycle. There are other elements as well which my Free Market Economics discusses and is discussed in Peter’s Bad Economics, but in the meantime, let me identify this as its fundamental premise.

    Anyone interested in seeing where this takes us is invited to my presentation at the School of Economics at RMIT on the 11th floor of our new building at 445 Swanston St. Lunch at 12:30 with the presentation commencing at 1:00 and ending at 2:00.

  18. Ok, PR wise, isn’t the next step the manifesto and policy recommendations? If you want to get traction, I would make those policy recommendations proximate, rather than the usual fractional-reserve or epistemological holy wars. From the policy recommendations, you then have a stepping stone to the op-eds, the public, and the ears of policy-makers.

    My 2 cents…;-)

  19. Poor Old Rafe

    By incredible good fortune Steve’s book on Says Law is available at a reasonable price and post free from the Book Depository.

    From the same source you can get Sowell on Says Law as well.

    And there is a single copy of William Hutt’s book on Says Law in a second hand shop in Sydney but I am not going to say where because I want to get there first.

  20. Sinclair Davidson

    So does this deanship involve a big office? A large income? Screaming young ladies throwing their underwear at me?

    More seriously, you could always download the Hutt book from the Mises Institute.

  21. Poor Old Rafe

    Thanks Sinc, I love the Mises downloads, I bought the gigantic Hulsmann bio of Mises and lent it to someone, but have to resort to the Mises on line version until I remember who has got my book.

    Because the Australian school is a voluntary association and unfunded, the duties of the Dean are purely symbolic, adding academic lustre and respectability to the enterprise. There could be a ceremonial function if we every get together en masse.

  22. Nuke Gray

    It sounds like we will have to buy female underwear for you, if that is your thing, DS. What size? When we meet, we can all throw them at you. Will that please you?

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